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Chapter 7: 6E (page 365)

Presented below is information from Perez Computers Incorporated.

July 1 Sold \(20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross method to record cash discounts. Perez estimates allowances of \)1,300 will be honored on these sales.

10 Perez received payment from Robertson for the full amount owed from the July transactions.

17 Sold $200,000 in computers and peripherals to The Clark Store with terms of 2/10, n/30.

30 The Clark Store paid Perez for its purchase of July 17.

Instructions

Prepare the necessary journal entries for Perez Computers.

Short Answer

Expert verified

Debit and credit columns of journal totals$440,000.

Step by step solution

01

Definition of Gross Method

A method used to record journal entry for goods sold on cash discount terms, under which gross amount of sales is reported, is known as gross method. Under this method, discount is accounted for separately when a cash payment is received.

02

Journal entries

Date

Accounts and Explanation

Debit $

Credit $

July 1

Accounts receivables

$20,000

Sales

$20,000

(To record the credit sales made by the business entity)

July 10

Cash

$19,400

Discount allowed

$600

Accounts receivables

$20,000

(To record the cash received from receivables)

July 17

Accounts receivables

$200,000

Sales revenue

$200,000

(To record the sales made on account)

July 30

Cash

$200,000

Accounts receivables

$200,000

(To record the cash received from receivables)

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Most popular questions from this chapter

(Notes Receivable Journal Entries) On December 31, 2017, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of \(102,049, accepting \)40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.

Instructions

Prepare the entries that would be recorded by Oakbrook Inc. for the sale and the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2017.

(b) December 31, 2018.

(c) December 31, 2019.

(d) December 31, 2020.

(e) December 31, 2021.

3. Which of the following statements is false?

(a) Receivables include equity securities purchased by the company.

(b) Receivables include credit card receivables.

(c) Receivables include amounts owed by employees as a result of company loans to employees.

(d) Receivables include amounts resulting from transactions with customers.

Milner Family Importers sold goods to Tung Decorators for \(30,000 on November 1, 2017, accepting Tung鈥檚 \)30,000, 6-month, 6% note. Prepare Milner鈥檚 November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest.

Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilow鈥檚 Accounts Receivable account was \(555,000 and Allowance for Doubtful Accounts had a credit balance of \)40,000. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below.

Days Account Outstanding

Amount

Probability of Collection

Less than 16 days

$300,000

.98

Between 16 and 30 days

100,000

.90

Between 31 and 45 days

80,000

.85

Between 46 and 60 days

40,000

.80

Between 61 and 75 days

20,000

.55

Over 75 days

15,000

.00

Instructions

(a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end?

(b) Show how accounts receivable would be presented on the balance sheet.

(c) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?

(Petty Cash) The petty cash fund of Fonzarelli鈥檚 Auto Repair Service, a sole proprietorship, contains the following.

1. Coins and Currency

\(15.20

2. Postage Stamps

2.90

3. An I.O.U from Cunningham, an employee, for cash advance

40

4. Check payable to Fonzarelli鈥檚 Auto Repair from Pottsie Weber, an employee, marked NSF

34

5. Vouchers for the following:

Stamps

20

Two Rose Bowl tickets for Nick Fonzarelli

170

Printer cartridge

14.35

204.35

\)296.45

The general ledger account Petty Cash has a balance of $300.

Instructions

Prepare the journal entry to record the reimbursement of the petty cash fund.
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